GLOBAL ECONOMY Oil at $40 a barrel fails to raise concern among the experts

Oil prices would have to double to really hurt, economist says. HONG KONG (AP) -- Oil drives the global economy, and the prospect of war in Iraq recently helped push it to within a penny of $40 per barrel -- a number last seen in the run-up to the original Gulf War and viewed by many as big trouble. But the pains may not be as pronounced this time around -- largely because a $40 barrel of oil just isn't what it used to be. Crude oil futures hit $39.99 last week on the New York Mercantile Exchange, just shy of the psychologically important level of $40. But the gradual creep of inflation has meant that $40 oil today is about the same as $28 oil would have been after Iraq invaded Kuwait in 1990. And, since the 1973 oil embargo shock, most countries have managed to double "the economic output per barrel of oil consumed," according to reports by energy analysts at Merrill Lynch. So in real terms, oil costs less and consumers are getting more out of each barrel than in the past. "It would have to get to $50, $60 or $80 to be as bad as it was before," said Song Seng Wun, a regional economist at GK Goh Research Pte. Ltd. in Singapore. "You really need oil prices to more than double from the present level to have a big impact." Potential effect Which is not to say there will be no fallout. Song predicts that if prices were to stay at their current levels for a year, some consuming nations could see about 1 percentage point knocked off their GDP. "When you're struggling for growth, it could be damaging," Song said. Though Washington's saber-rattling over Iraq has put a "war premium" into the oil market, analysts say other factors have helped push prices higher -- lower oil supplies in the West and cold winter weather in the United States, which boosted consumption of home heating oil. Leo Drollas, chief economist at the Center for Global Energy Studies in London, agreed many economies are less vulnerable to oil prices these days. "The impact of high oil prices doesn't cascade through the economy the way it used to do," Drollas said. "It has a limited effect. The consumer's pocketbook is not hit as hard as it was in the '70s and '80s and '90s." Experts also are quick to note that prices can plummet quickly. In 1991, after the U.S.-led attack began and appeared to be going well, oil lost about one-third of its value in just one session on the New York Mercantile Exchange.